Today we face a climate of ever increasing misdirection by popular media. This site, along with others, aims to reveal the reality of America and the loss of fact inherent to the over riding theme of our current political and social confusion: Purposeful deception.

Saturday, March 10, 2012

Inside the Keystone pipeline: How much would it really help US consumers?

Often lost in the political
wrangling over the controversial Keystone
XL pipeline – on hold afterPresident
Obama rejected TransCanada’s initial construction proposal – are some
key findings that run counter to the rosy picture of abundant supply and lower
prices so often painted by US politicians.

Canadian companies backing the
Keystone XL – touted as enhancing US energy security with a big new surge of
imported Canadian oil – actually expect it to supply more lucrative Gulf Coast export
markets as well as raise Midwest oil prices by reducing “oversupply” in that
region.

These little-publicized
findings are contained in the studies and testimony of experts working for
TransCanada, the company that wants to build the pipeline from Alberta’s
tar sands across America’s
heartland to GulfCoast refineries.

Some of these concerns
popped up, albeit briefly, in US congressional testimony last year on the
pipeline project, and have given rise to a recent proposal to bar the sale of
Keystone oil overseas.

In the latest round of Capitol
Hill fighting over the pipeline, Senate Democrats on Thursday defeated
a Republican amendment to the transportation bill that would have fast-tracked
the project by stripping the State Department of its approval authority and
giving it to Congress.

In February, legislation to
force US
approval of the pipeline passed the House 237-187. That bill would strip the
president of authority to block the project and give the Federal Energy Regulatory Commission 30 days to approve
the pipeline.

But most of the heated
partisan rhetoric over job creation and gasoline prices glosses over what
Keystone would or wouldn’t do for the US.

TransCanada’s case

“Keystone will bring many
benefits to the United States, but I believe the most important role that
Keystone will play is to bring energy security to the United States
during what has been recently some very unsettling times overseas,” Alex
Pourbaix, TransCanada’s president for energy and oil pipelines, said in a
congressional hearing in December.

So, would TransCanada
support US legislation
requiring Canadian oil and products refined from it, such as diesel, to be sold
only in the United States,
asked Rep. Ed Markey (D) of Massachusetts,
“so that this country realizes all of the energy security benefits your company
and others have promised?”

“No, I can't do that,” Mr.
Pourbaix said.

In an e-mailed statement,
TransCanada spokesman Terry Cunha writes that Keystone XL could help cut US reliance on Mideast
and Venezuelan imports “by up to 40 percent.” He cites a 2010 US Department of Energy study that he contends says
more Canadian oil would “help reduce US imports of foreign oil from sources
outside of North America.”

Most analysts agree that
more Canadian oil flowing south would help reduce imports from other regions.
Less obvious, however, is the fact that the Keystone XL pipeline is not
actually needed to bring all that new Canadian oil to the US – a flow now
projected to rise to 1.7 million barrels per day by 2030, according to the same
DOE study. Often characterized by proponents as validating the need for the
pipeline, that study actually found that Canadian oil import growth will go on
at “almost identical” levels through 2030 using existing and new pipeline
capacity as well as rail shipments – whether or not Keystone XL is built.

Political backlash

Even so, supporters in
Congress continue to call Keystone XL “a no-brainer" from a US
energy-security standpoint, also arguing it would benefit consumers by lowering
gas prices, too. Keystone XL's “supplies from reliable sources leads to lower
costs, thereby putting downward pressure on prices,” one study on TransCanada's
website says.

According to this premise,
Keystone XL would move up to 830,000 barrels of Canadian crude south each day,
boosting economic activity by billions of dollars and creating thousands of new
jobs – though their precise number is hotly disputed.

Yet in January, Mr. Obama,
under pressure by Republicans, reiterated his previous decision to deny
permission to build the Keystone XL– at least for now. The pipeline “would not
serve the national interest at this time,” Dr. Kerri-Ann Jones, an assistant
secretary of State, subsequently told the House subcommittee on Energy and
Power, citing “unresolved concerns” including energy security, economic effects
and environmental impacts.

TransCanada replied to the
denial by saying it would resubmit its construction proposal to address the
environmental concerns, and on Tuesday a company executive reportedly said new
plans that rerouted the pipeline away from the sensitive Nebraska Sandhills
region would be ready in weeks.

But the president's denial
unleashed a furor as GOP presidential
candidates and oil industry backers lambasted the White
House for denying the US
economy oil and jobs.

“The president demonstrates
a lack of seriousness about bringing down unemployment, restoring economic
growth, and achieving energy independence,” GOP presidential hopeful Mitt
Romneysaid in a statement.

Newt
Gingrich said the decision “weakens America's national security and
kills thousands of well-paying American jobs,” while oil industry advocate Jack
Gerard, president and CEO of the American Petroleum Institute, called the
project “essential,” and said, “It must be approved and built.”

Higher oil prices in the Midwest?

But others, including
environmentalists who oppose the pipeline mainly because extracting oil from
tar sands releases more greenhouse gases than other methods of harvesting oil,
also argue the pipeline will do little or nothing to boost US energy security and will actually lead to
higher oil prices in the Midwest.

“Rather than providing the
US with more Canadian oil, Keystone XL will simply shift oil from the Midwest
to the Gulf Coast, where much of it can be exported to international buyers –
decreasing US energy supply and increasing the cost of oil in the American
Midwest,” concludes a new study by the Natural Resources Defense Council, a New York-based
environmental advocacy non-profit group, citing numerous TransCanada studies
and the transcripts of Canadian federal hearings.

But it’s not just
environmentalists who are howling in the wilderness.

“The firms involved have
asked the US State Department to approve this project, even as
they’ve told Canadian government officials how the pipeline can be used to add
at least $4 billion to the US fuel bill,” Philip K. Verleger, president of
PKVerleger LLC, aColorado consulting firm that specializes in research
on oil market economics, wrote in a Minneapolis Star-Tribune
commentary last March.

US farmers who spent $12.4
billion on fuel in 2009 could see those costs rise to $15 billion or higher if
the pipeline goes through, he projects. At least $500 million of the added cost
“would come from the Canadian market manipulation,” he wrote.

“Millions of Americans will
spend 10 to 20 cents more per gallon for gasoline and diesel fuel as tribute to
our ‘friendly’ neighbors to the north,” the highly respected Dr. Verleger
wrote. “The Keystone XL pipeline will move production from Canadian oil sands
to a deepwater port from where it can be exported.”

But that is not merely
Verleger’s opinion. It’s based on findings of the economic consultants hired by
TransCanada – contained in their analyses of the pipeline’s impact on Canadian
oil producers and in official testimony before Canada's National Energy Board.

“Existing markets for
Canadian heavy crude, principally [the US Midwest], are currently oversupplied,
resulting in price discounting for Canadian heavy crude oil,” concludes a 2009
analysis on behalf of TransCanada by Purvin
& Gertz, Inc., an oil economics firm based inHouston.
“Access to the [US Gulf Coast] via the Keystone XL Pipeline is expected to
strengthen Canadian crude oil pricing in [the Midwest
market] by removing this oversupply. This is expected to increase the price of
heavy crude to the equivalent cost of imported crude.”

Gulf link to global markets

As a result of those
increases in the price of heavy crude in the Midwest and sales of higher-margin
refined products shipped out from GulfCoast refineries to other
markets, Canadian oil producers could be expected to reap $2 billion to $3.9
billion more each year, the analysis says.

“Shippers on the Keystone XL
Pipeline have contracted for access to the [US Gulf Coast] market for their oil
sands production and refining needs,” the Purvin & Gertz study concludes.
“Not only will this directly benefit these shippers, it will also provide a
benefit to all [Western Canadian] heavy crude producers by increasing the price
they receive for their crude, as well as providing significant pipeline
capacity to an alternative market” on the US Gulf coast.

Why Canadian crude oil
producers would choose Keystone XL when other pipelines to the US are running
well below capacity has much to do with diversifying away from the US market to
more lucrative markets in Europe, China, and
other Asian countries, Verleger and others argue. Trends seem to support this
thesis.

Over the past five years,
exports from the US Gulf Coast have soared as refiners sitting in tax-free
zones near Port Arthur, Texas, have
shifted production away from gasoline and toward higher-margin diesel. Since
2007, overall US
exports of diesel and other products have jumped 134 percent, the US Energy Information Administration reports. Of US
exports, two-thirds is shipped abroad from GulfCoast
refineries – now more than 2 million barrels a day and up from just a quarter
of today's level a decade ago.

That trend was captured in
testimony Sept. 17, 2009, before Canada’s
National Energy Board. Seven Canadian companies were willing to pay higher
pipeline tariff costs for using the Keystone XL pipeline, the testimony showed,
in order to bypass Midwest refineries by
sending 500,000 barrels per day, the lion’s share of the pipeline’s capacity,
to Gulf refineries.

Valve to relieve Midwest
oil “oversupply”

In addition to winning
higher prices for Canadian oil in the Gulf, the pipeline would boost revenues
by shuttling existing oil supplies out of the Midwest
– boosting prices, the Canadian study and testimony also show.

“So seven shippers or seven
producers are, in your view, pursuing this strategy in order to increase the
[Midwest oil market] and Ontario prices.
Do I have it right?” D. Davies, a Canadian energy board examiner asked Thomas
Wise, the Purvin & Gertz expert who authored the economic analysis for
TransCanada.

“If a minority of the
barrels were sold at the GulfCoast at a GulfCoast price, that would have the
effect of raising the price not only in the Midwest and Ontario but in Western
Canada,” Mr. Wise responded.

In hearings last May and
December, TransCanada officials admitted to US legislators that the pipeline
will indeed increase the price paid for Canadian oil in the Midwest – but
suggested those higher crude oil prices would not necessarily mean higher gasoline
prices in that region.

The pipeline would reduce
the “discount on Canadian oil” currently paid by US refiners – an oil price
increase for US refineries, Pourbaix said in a congressional hearing last May.
Even so, “that crude will still remain the cheapest source of crude by a long
shot that U.S.
refineries have access to,” he testified.

“If you add significant new
supply to a static demand for a product in a market, you should see the price
go down,” Pourbaix explained. “So it is my absolute expectation, that over
time, with incremental supplies of Canadian crude oil coming into the US market, you
will see downward pressure on refined products prices, throughout US markets.”

In his e-mailed response,
TransCanada's Mr. Cunha cites a June 2011 report by IHS CERA, an energy
economics firm that reached similar conclusions. “Prices at the pump will drop
when America’s largest
refining region (the GulfCoast) becomes less
dependent on the world’s highest priced crude (OPEC),” he
wrote. “Foreign importers will have to cut their prices if they want to compete
with the cheaper Canadian crude.... We would argue the overall US price per
barrel will drop as refiners pay less for foreign and domestic oil competing
with a higher volume of cheap Canadian oil.”

Testimony and supporting
documents north of the border stating that Keystone XL would raise Canadian
crude prices has set off alarm bells with several US legislators – while leaving
others unmoved.

Legislators react to findings

Rep. Ed
Whitfield (R) of Kentucky,
who chaired two hearings into the Keystone XL, heard positive testimony about
the pipeline – as well as contradicting testimony that it would do little or
nothing for energy security while raising Midwest
oil prices. He still likes the project, however.

“If our president decides
that sending aircraft carrier strike groups to the Strait
of Hormuz to defend oil flow is in the national interest, then one
would also think a pipeline from Canada that would help eliminate our Middle
East oil imports also serves the national interest,” Mr. Whitfield
said in a prepared opening statement for the hearing he chaired.

In an e-mailed statement,
Whitfield's press secretary adds that the pipeline “will help lower the price
of gasoline by bringing more oil supply to the market” and says the Department
of Energy “specifically states that gasoline prices in all connected markets
would go down.”

“While the full nature of
the arrangements agreed upon by the Canadian shippers is unclear, there is
clear indication that there is a coordinated ‘strategy’ among Canadian
suppliers to gain higher prices,” Senator Wyden wrote Jonathan Liebowitz,
chairman of the FTC in an April 6, 2011, letter. “This will have the effect of
manipulating supply levels allowing prices of oil refined in [the Midwest oil
market] to rise and ultimately benefitting the Canadian companies with higher
prices.”

On Thursday, it was Wyden
who put forward an amendment to the transportation bill that would have
prohibited the sale of the Keystone oil overseas and imposed other regulatory
requirements. His amendment was defeated 64 to 34.

Reacting to Obama’s previous
decision to bar approval for Keystone XL, TransCanada made it clear it
considered the project too vital to delay for long.

“Until this pipeline is
constructed, the US will continue to import millions of barrels of conflict oil
from the Middle East and Venezuela and
other foreign countries who do not share democratic values Canadians and
Americans are privileged to have,” Russ Girling, TransCanada's president and
chief executive officer said in a statement.

“This project,” he
continued, “is too important to the US economy, the Canadian economy and the
national interest of the United States for it not to proceed.”

For Rep. Allen West, the
skyrocketing price of gasoline is a personal pocketbook issue. The Florida tea-party
Republican congressman (who blames President Obama for the price increase)
recently wailed on Facebook that it's now costing him $70 to fill his Hummer.

It's hard to feel the pain
of a whining, $174,000-a-year, Hummer-driving Congress critter, but millions of
regular Americans really are feeling pain at the pump. It's an especially
cynical political stunt, then, for Republicans and their chorus of right-wing
mouthpieces to use gas-price pain as a whip for lashing Obama's January
decision to reject the infamous Keystone XL pipeline.

"Outrageous!" they
cried, asserting that Keystone would bring 700,000 barrels of Canadian
"tar sands crude" per day through its 2,000-mile-long pipeline to
refineries on the Texas Gulf Coast.

"More gasoline for America,"
they shout, "lower prices for consumers. What's not to like?"

Well, aside from inevitable
environmental damage from pipeline leaks, being lied to is one thing we don't
like.

Their claim that this
Canadian crude would be refined into fuel for our vehicles is a lie. Instead,
the refiners intend to export it to Europe, Latin America, and China. The
dirty little secret that Keystone backers never mention is that building the
pipeline would not shave even a penny off the price we pay at the pump.

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